US firms fret over taxation, poor infra

US companies in the Philippines are the second most optimistic among their counterparts in Asean, with 70 percent of them expressing intention to expand.

The bullish sentiment reflects on their expectations for next year as 85 percent of them believe profits will be higher in 2018.

The 2018 Asean Business Outlook Survey, however, shows half of the respondents are dissatisfied with customs and taxation in the Philippines.

From among 16 factors that measure business environment, availability of labor tops it all for US businesses in the Philippines.

Tax structure scored last at 15 percent.

The most challenging factors Philippine-based respondents to the 2017 AmCham survey identified were poor infrastructure, corruption, and the tax structure.

American businesses have credited both the current and previous administrations in reducing corruption and in substantially increasing spending on both physical and social infrastructure.

“Comprehensive Tax reform is an early major priority before the Congress now. We expect these and other reforms initiated by the government will be reflected positively by the time of the next survey in 2018,” the report added.

In this year’s edition of the survey that coincides with the 50th anniversary of Asean, US companies are optimistic about the growth outlook and investment opportunities in the region as businesses see solid growth in domestic consumption.

The survey, which polled senior executives representing US companies in all 10 Asean countries, found that 56 percent expect their profits to increase this year over last, and 74 percent expect higher profits in 2018.

Fifty-eight percent reported that Asean markets have become more important for their companies’ global bottom lines over the last two years, and 62 percent of companies surveyed say their level of trade and investment in Asean has increased during this period. Over the next five years, 80 percent expect that their level of trade and investment in Asean will increase.

Business leaders point to the region’s economic growth and rise in the middle/consumer class as top reasons for this increase, especially in Singapore (73 percent), the Philippines (70 percent), and Indonesia (65 percent).

Across Asean, the sectors most poised to benefit from the rise of the middle/consumer class are wholesale/retail (74 percent) and software/IT/telecoms (68 percent).

Respondents also demonstrated confidence about continued growth in Asean through plans for business expansion. Seventy-one percent plan to expand their business to another Asean country, and 62 percent plan to expand within their response location.

The most common destinations for business expansion overseas were Vietnam, Myanmar, and Indonesia. Forty-five percent of companies reported that they primarily serve the local market, in contrast to the 13 percent of companies which primarily export.

“The 2017 survey results for the Philippines saw 70 percent of AmCham Philippines respondents planning to expand their operations in the Philippines. This level of confidence was among the highest in the ten Asean economies and the same as Vietnam (72 percent) and Myanmar (71 percent). The optimism of AmCham companies, some of whom have been in the country nearly a century, is based first and foremost on the high value they place on the local labor force, regarded as adequate, well-trained, and low cost,” said AmCham Philippines executive director Ebb Hinchliffe.

This survey demonstrates clearly and vividly that US commercial interests in Asean are vast, and the region is vital to US jobs and economic growth,” said Tami Overby, senior vice president for Asia at the US Chamber of Commerce. “Economic integration in Asia, and between Asia and other parts of the world, is a fact. It is also a fact that if US policy does not support deeper engagement by US companies in this part of the world, it will be left behind – particularly small and medium-sized US exporters. If we want to support US economic growth, we need to make new trade deals in Asia, not pull out of them,” said Overby.

Ann Yom Steel, executive director, AmCham Singapore said that as the United States invests more in Asean countries than anywhere else in the Asia-Pacific region, strong US- Asean ties are critical.

“Singapore serves as an important US trading partner, a major destination for US investment, and is key to providing a vital set of links in US companies’ global supply and value chains. So it is no surprise that American companies choose Singapore as their Asia-Pacific regional headquarters. We will continue to push for an even closer cooperation between the US and our partners here through shared principles of dynamic growth and emerging opportunities,” Steel said.

Challenges to Growth

While optimism remains strong, there has also been a clear softening of sentiment toward business prospects in the region over the past few years. In the 2015 survey, for example, 72 percent of respondents said their level of trade and investment in the region had increased over the prior two years. In 2013, 91 percent of respondents said their trade and investment would increase in the next five years.

In addition, a plurality (48 percent) of businesses expects that bilateral ties between Asean countries and China will deepen and nearly the same percentage (46 percent) indicate that there will be potential negative effects on their company’s operations should the US take punitive trade action against China.

As in previous years’ surveys, US companies cite corruption as their single greatest concern in the region (except in Brunei and Singapore), followed by laws and regulations that inhibit business expansion. Respondents also reported a moderate to substantial decrease in their level of satisfaction with these and 13 other investment climate indicators over the past five years. The concern with corruption was virtually unchanged, while satisfaction with personal security, sentiment toward the United States, political stability, and laws and regulations declined from 2012-17.

In previous surveys, executives have indicated that the Asean Economic Community (AEC) will make the region more attractive to investment. This year, respondents recommended several priority areas for Asean to address in the context of the AEC, including corruption, non-tariff barriers, transparency, and good governance.

Column of the Day

‘The Foreign Corrupt Practices Act of 1977 (FCPA) (15 U.S.C. § 78dd-1, et seq.) is a United States federal law known primarily for its main provision: Against bribery of foreign countries’ food management officials.’

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